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Investment Column: Dignity should get investors' pulses racing

Minerva; Trifast

Alistair Dawber
Wednesday 22 September 2010 00:00 BST

Our view: Buy

Share price: 708p (-3p)

Readers of this column will recall that after recommending Dignity through the downturn, we went cold – OK, lukewarm – on the stock in March.

We turned holders, reasoning that the preceding run of strength had left the shares in the chain of funeral directors fairly valued. At the time, we also argued that, despite raising its dividend, Dignity should be thinking about returning more cash to shareholders.

And that's exactly what it has done.

Following on from what were seen as the latest in a line of robust results in the summer, the company is expected to raise £87.1m from new secured notes. Of that, Dignity intends to return £63.9m, or £1 per share, to investors. The remainder will be used for, among other things, paying £1m into Dignity's defined benefit pension scheme and for acquisitions (the latter point bodes well for future growth, in our view).

In terms of what all this does to the balance sheet, Oriel Securities reckons that the ratio of gross debt to earnings before interest, tax, depreciation and amortisation should end up at around 4.8 times – or well clear of the previously targeted level of 6 times.

Even more happily, the broker suggests that the stable, cash generative nature of Dignity's business means that "a return of cash of this magnitude to shareholders could be made at least every three years".

This – and the facts that the shares trade on multiples of below 15 times forecast earnings for 2011 and that interest rates look set to remain low for some time – makes Dignity look like a very attractive, income generating investment proposition.

Factor in the defensive nature of the company's revenue stream – for obvious reasons – and we think it's time to buy once more. Buy.


Our view: Hold

Share price: 97p (-1p)

Phew! It's one thing knocking back the protests of rebellious investors, as property developer Minerva did earlier this month. But persuading friendlier backers that the company is safe in the hands of the existing management team sounds a bit hollow if you can't back it up with the numbers.

The group, which owns the Walbrook, one of London's biggest unlet office blocks, backed its rhetoric yesterday saying that the value of its portfolio was up by 17.4 per cent in the year to June, a decent turnaround from the 35.4 per cent drop a year earlier.

Minerva's management has spent the past few months battling the attentions of its biggest backer, and former suitor, KiFin, which had wanted to oust the chief executive Salmaan Hasan and chairman Oliver Whitehead.

Other shareholders decided there was insufficient merit in KiFin's claims that the company was not being run properly and that there was insufficient transparency, so now the management can finally get on with running the company, particularly getting tenants for the Walbrook.

But KiFin retains its nearly 30 per cent stake in Minerva and there will be uncertainty about what will happen to this in the future, while the 173 per cent gains in the past 12 months have slowed significantly in recent months.

The shares might trade at a 25 per cent discount but "it will probably take news of a letting at one of the City office schemes before this gap is materially closed", as Citigroup points out.

Add to that renewed concerns about the strength of the recovery in the property sector, and we would urge caution on Minerva. Hold.


Our view: Buy

Share price: 33p (unchanged)

Trifast makes and distributes "industrial fastenings to the assembly industries", which seems to include anything from the nuts and bolts in computers and mobile phones to bits for aeroplanes and cars.

The company freely admits it is still in its "rebuild" phase after a rollercoaster 18 months, but there are signs of light at the end of the tunnel. From a low of about 20p in March, the stock has enjoyed strong growth this year, rising as high as 41p at the back end of last month. And the management has set about slimming costs and getting Trifast back on track.

In August, the group revealed that revenue to the end of June was 28 per cent ahead of the same time a year earlier, and added it was experiencing an improvement in trading and business opportunities.

There was more good news yesterday as the executive chairman Malcolm Diamond said the traditionally quiet summer months had seen a rise in demand and enquiries. House broker Arden has the stock on a price of 13.4 times estimated 2011 earnings and after a recent dip, it seems like a good time to pick up a few. Buy.

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